GIVEN: As of December 31, 2010 (the end of the prior quarter), the company\'s ge

Question

GIVEN:
As of December 31, 2010 (the end of the prior quarter), the company's general ledger showed the following account balances:
Cash 48,200
Acct. Receivable 54,400
Inventory 30,600
Equipment (net) 53,800
Acct. Payable 59,000
Capital Stock 61,000
Retained Earnings 67,000

Sales for January is budgeted to be 500,000 and you expect sales thereafter to increase by 10% each month

Sales are 30% for cash and 70% on credit. All payments on credit sales are collected 60% in the month of sale and the remainder in the following month. The accounts receivable at December 31 are a result of December credit sales.

Cost of goods sold is 40% of sales. The company desires ending inventory of 25% of the following month’s cost of goods sold.

60% of a month’s inventory purchases are paid for in the month of purchase; the remainder is paid for in the following month. The account payable at December 31 is the result of December credit purchases.

Monthly selling and administrative expenses are budgeted as follows: salaries and wages 125,000 per month; advertising 10,000 per month; shipping 3% of sales; other expenses 5% of sales/ Depreciation is 3,000 in January and will increase to 25,000 per month per month thereafter. Salaries and advertising are paid in the month incurred and the other expenses are paid in the month following incurrence.

During February the company will purchase building and equipment for 200,000 cash.

During January you anticipate issuing a cash dividend of 25,000.

The company must maintain a minimum cash balance of 20,000. An open line of credit is available at a local bank for any borrowing that may be needed during the quarter. All borrowing is done at the beginning of a month and all repayments are made at the end of a month. Borrowing and repayment of principal must be in multiples of 1,000. Interest is paid only at the time of payment or principal. The annual interest rate is 12%. (Figure interest on whole months, e.g., 1/12, 2/12.)

FIND:
Prepare the following for the first quarter of the year (show all calculations for each month)
A. Sales budget
Cash collections budget
B. Inventory purchases budget
Schedule of cash disbursements for purchases
C. Selling and administrative expense budget
Schedule of cash disbursement for selling and administrative expenses
D. Cash budget

Prepare a variable costing income statement for the quarter ending March 31, 2011. (60% of cost of goods sold is variable and 30% of the other expenses are variable)

Prepare a balance sheet as of March 31, 2011

Explanation / Answer

January

Febrauary

March

January

Febrauary

March

Quarter

January

Febrauary

March

January

Febrauary

March

Quarter

January

Febrauary

March

January

Febrauary

March

Quarter

January

Febrauary

March

January

Febrauary

March

January

Febrauary

March

A. Sales Budget: January Sales 500000 Add: 10% (500000 * 10%) 50000 February Sales 550000 Add: 10% (550000 * 10%) 55000 March Sales 605000

January

Febrauary

March

Sales 500000 550000 605000 Cost of goods sold 40% of Sales 200000 220000 242000 Gross profit 300000 330000 363000 Desire ending inventory 25% of COGS 50000 55000 60500 Cash Collections Budget:

January

Febrauary

March

Quarter

Sales 500000 550000 605000 Cash Sales 30% 150000 165000 181500 Credit Sales 70% 350000 385000 423500 Collections: Cash sales 150000 165000 181500 60% 210000 231000 254100 140000 154000 Total Collections for this quarted 360000 536000 589600 1485600 Previous years collections 54400 Total Collections: 1540000 B. Inventory Purchases Budget:

January

Febrauary

March

Cost of goods sold 40% of Sales 200000 220000 242000 Desire ending inventory 25% of COGS 50000 55000 60500 Opening Stock 30600 50000 55000 Purchase 219400 225000 247500 Closing Stock 50000 55000 60500 Cost of goods sold 200000 220000 242000 Purchase = Cost of Goods sold + Closing Stock - Opening Stock Schedule of Cash Disbursment to Suppliers

January

Febrauary

March

Quarter

Purchase 219400 225000 247500 60% 131640 135000 148500 40% 87760 90000 Total Payments for Quarter 131640 222760 238500 592900 Last year payments 59000 Total payments 651900 C. Selling and Administrative Expenses Budtet:

January

Febrauary

March

Salaries 125000 125000 125000 Advertising 10000 10000 10000 Shipping 3% 15000 16500 18150 Other Expenses 25000 27500 30250 Depreciation 3000 25000 25000 Selling and Administration Expenses Budget:

January

Febrauary

March

Quarter

Salaries 125000 125000 125000 Advertising 10000 10000 10000 Shipping 15000 16500 Other Expenses 25000 27500 Total payments 135000 175000 179000 489000 D. Cash Budget:

January

Febrauary

March

Opening Balance 48200 111960 50200 Receipts: Collections From Customers 414400 536000 589600 Total Cash Available: 462600 647960 639800 Payments: Suppliers 190640 222760 238500 Selling & Administration Expenses 135000 175000 179000 Buildings and Equipment 200000 Cash Dividends 25000 Total payments: 350640 597760 417500 Closing Cash balance 111960 50200 222300 Income Statement:

January

Febrauary

March

Sales -(A) 500000 550000 605000 Cost of goods sold 40% of Sales (B) 200000 220000 242000 Gross profit -c = (A-B) 300000 330000 363000 Less: Operating Expenses: Salaries 125000 125000 125000 Advertising 10000 10000 10000 Shipping 3% 15000 16500 18150 Other Expenses 25000 27500 30250 Totala Operating Expenses - (D) 175000 179000 183400 Operating Profit (C - D) 125000 151000 179600 Depreciation 3000 25000 25000 Net income 122000 126000 154600 Retained Earnings:

January

Febrauary

March

Opening Balance 67000 164000 290000 Current month 122000 126000 154600 Total Earnings 189000 290000 444600 Less: Dividend Paid 25000 0 0 Net Retained earnings 164000 290000 444600 Balance Sheet as on march 31, 2011 Assets: Current Assets 222300 Inventory 60500 Accounts Receivable 169400 Total Current assets: 452200 Fixed Assets: Equipment 53800 Add: Purchases 200000 253800 Less: Depreciation 53000 200800 Total Assets 653000 Liabilities and Equity: Liabilities: Accounts payble 99000 Other expenses payble 48400 Total liabilities 147400 Equity: Capital Stock 61000 Retained earnings: 444600 Totala Liabilities and Equity: 653000

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